PARLIAMENTARY INTENT Bill Dodwell considers the government’s proposals that large businesses should publish their tax strategy must be discerned from almost anything released at the me by HMRC, the Treasury and parliament itself. Surely we now have the tools in the form of purposive construcon, a realisc assessment of the facts and the GAAR to ensure that it is almost impossible for the taxpayer to claim an unintended advantage through planning or tax avoidance. The implicaon of the consultaon on Large Business Compliance is that HMRC considers there is sll a gap. Companies are being asked whether they seek advantages from applying in a reasonable way the clear words of the law enacted by parliament – but apparently in ways not intended by the legislature. Is that realisc? Like taxpayers, our tax authority has to apply purposive construcon if the meaning of the law is unclear. Yet the intenon of parliament is not relevant. HMRC’s legal duty is to collect the tax due under the law. HMRC have said many mes that they are obliged to collect tax, even when apparently unfair or when it is being levied on something far in excess of the economic profit. We see an example of this in Lobler – the case involving an individual who invested in an insurance bond but who mistakenly cashed it in over two years, leading to a huge tax charge in the first year and an unusable loss in the second. Fortunately the Upper Tribunal decided that relief could be granted through recficaon – but HMRC’s posion was that they had to collect the tax due under the law. How, then, should taxpayers consider ‘the spirit of the law’? One route chosen by some groups is to refrain from planning that does not support their commercial acvies. This is a sensible objecve and surely a beer one than trying to find the ‘spirit’. I do wonder whether the connued search for the spirit is out of date – aſter all, it ignores modern construcon and the GAAR. That search starts to take us into Lord Hoffmann’s ‘dangerous and unpredictable territory’. Name Bill Dodwell Position Leader of Deloie’s Tax Policy Group Company Deloie LLP Tel 020 7007 0848 Email [email protected] Profile Bill Dodwell leads Deloie’s Tax Policy group, which is responsible for knowledge, training and representaons to HM Treasury and HMRC. He is Chair of the Technical Commiee and the Tax Adviser sub-commiee. PROFILE 24 September 2015 | www.taxadvisermagazine.com Spirit of the law Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46 at [35]: ‘The ulmate queson is whether the relevant statutory provisions, construed purposively, were intended to apply to the transacon, viewed realiscally.’ Judge Ribeiro’s words have been adopted by the Brish courts. It seems clear that our judges do not see a difference in pracce between ‘the law’ and ‘the spirit of the law’ – once they have enquired into the facts and tried to make sense of the words wrien by parliament. There are situaons, though, where the intenon of the parliament is unclear. In some cases before the courts, judges have said they cannot apply purposive construcon because they are unable to discern the purpose. In other cases, it is clear that subsequent commercial developments could not have been in the reasonable contemplaon of the legislature. Falling back on trying to tax the economic profit isn’t necessarily helpful since tax law oſten provides instances where something other than the accounng profit is taxed (and accounng principles have changed too). There are other scenarios in which the words of the law are clear but it seems highly unlikely that parliament could have envisaged their applicaon. If the taxpayer claims that a tax advantage is arising, we now have to apply the GAAR. The GAAR asks whether the taxpayer’s contorons amount to a reasonable course of acon in light of the statute and – most importantly –the policy intent behind the provisions. That policy intent O ne of the interesng phrases used in the recent consultaon, Improving Large Business Compliance, is ‘the spirit of the law’. The context is that the government is proposing a requirement that large businesses should publish their tax strategies, including their: ‘atude to tax planning and appete for risk in tax planning (eg whether they seek to work in accordance with the spirit – in addion to the leer – of the law)’. This is a difficult concept. Lord Hoffmann, one of the leading judges of recent mes, wrote in the Brish Tax Review (2005) ‘…tax avoidance in the sense of transacons successfully structured to avoid a tax which parliament intended to impose should be a contradicon in terms. The only way in which parliament can express an intenon to impose a tax is by a statute, which means that such a tax is to be imposed. If that is what parliament means, the courts should be trusted to give effect to its intenon. Any other approach will lead us into dangerous and unpredictable territory.’ For Lord Hoffman, the spirit of the law can only be discerned from the law itself and, as he puts it, we should then trust our judges to interpret fairly what parliament has wrien. Purposive construcon is the modern aid to interpretaon of the law. Unless there is complete clarity on the meaning of the law, we are asked to construe the words in the context of the statute – and take a realisc view of transacons. This laer point is most important and may be traced back to Ribeiro PJ in Collector of © IStockphoto/Michal Krakowiak